William Khalilieh, CPA, CA
Providing Accounting and Tax Solutions to Small Businesses in the GTA

Cash flow management

Dealing with CRA in Oakville as a Small Business Owner

If you are a small business owner, then you worry about running your business successfully. You need to keep your customers and suppliers happy, meet payroll and work to expand. The last thing you need to worry about is being responsible for someone else’s tax debt. Unfortunately, the Income Tax Act and the Excise Tax Act can make your business responsible for paying your employees and your supplier’s tax debt. If you don’t comply, you will be dealing with CRA in Oakville collecting from you.

Obviously, the simple answer for dealing with CRA in Oakville is to comply with the order. If it is your employee that owes the money, you can deduct a percentage from their after-tax pay and remit directly to CRA. With a supplier, you send your payment to them directly to CRA instead of to the supplier, or the amount that they owe CRA – which ever payment amount is lower. Out of courtesy to your supplier or employee, you will want to explain to the employee or supplier what you are doing.

I’m discussing this rule because a client of mine recently faced this issue when dealing with CRA in Oakville. What made my client’s situation interesting was that we received a “Second Notice” without getting a “First Notice”. When I called the CRA collection agent, the agent informed me that she sent the First Notice to the taxpayer and not my client. Not exactly an effective method of collecting payment! The troubling aspect of it is that I may have to spend time to fix this error. Problems could arise if CRA sends the “Final Notice” to the taxpayer, rather than my client, and then begin to enforce a judgement against my client.

As I mentioned in a previous blog, always open your mail from the CRA! Dealing with CRA in Oakville doesn’t have to be difficult. If you don’t understand the CRA letter, please do not hesitate to contact me.

William Khalilieh is a Chartered Professional Accountant, based in Oakville, Ontario, who provides practical tax and accounting solutions to individuals and their businesses in the Greater Toronto Area.


Are you selling your company’s shares to claim the capital gain exemption? Don’t forget to save money for taxes

You have worked hard to build a successful Toronto small business and you have found a buyer who is willing to buy the shares of your company.

You have the cheque in your hand and you are deciding what you should do next.   Before you start spending your hard-earned money, you better save some money to pay off your tax bill that’s due next April.

Now you may be thinking: “Wait, what tax bill?!?  I thought selling my company was supposed to be tax free.  That’s what I keep hearing on TV.”

While the first $813, 600* of selling your Toronto small business shares are tax free, you will be subject to the Alternative Minimum Tax.

You may be asking: “What is this Alternative Minimum Tax? And why have I never heard of it before?”

The Alternative Minimum Tax is basically the government’s way of ensuring Canadians pay tax even though many can take advantage of various tax deductions and credits.  Many Toronto small business owners have never heard of it before because it only applies in relatively rare and unique circumstances.  Below I will offer an example of a case in which the Alternative Minimum Tax may apply.

In order to estimate your potential tax bill, do the following:

1. Take your gain (up to $813,600) x 30%

2. Take the result from 1 and subtract $40,000.

3. Take the result from 2 and multiply by 15%

4. Take the result from 3 and multiply by 1.35 (to add provincial taxes)

As example, say you have an $800,000 gain on the sale of your company shares.  Your conservative tax estimated bill would be calculated as follows:

($800,000 X 30% – 40,000) x 15% x 1.35 = $40,500

Therefore, you will need to have to keep this cash available to pay off CRA on April 30th, the year after you sell your business.

If you have continued income over the next 7 years, the $40,500 will be used as a reduction for future tax bills. However, you can only claim the reduction if your regular tax bill is in excess of your AMT bill each year.  To demonstrate this, I will continue from the example given above. Say you got a consulting contract from the purchaser of your business for $200,000 for 2016, which generates a $60,000 tax bill.  You would only owe $19,500 in 2016 as the $40,500 is used as a “credit” against the $60,000 worth of tax that you owe in 2016.  In other words, under the “regular” tax system you would have paid $0 in 2015 and $60,000 in year 2 for total taxes of $60,000.   Under the AMT system, you paid $40,500 in 2015 and $19,500 in 2016 for total taxes of $60,000.  While this example oversimplifies what can be an extremely complex process, it illustrates that the AMT is generally a prepayment of tax.

If you have no income over the 7 years following the sale of shares, the $40,500 becomes your tax bill on the sale of your company and will not be credited to you.

Therefore, it is very important to factor in this tax bill when selling your Toronto small business.  Please contact me to discuss options on how to manage this tax cost. 

William Khalilieh is a Chartered Professional Accountant, based in Oakville, Ontario, who provides practical tax and accounting solutions to individuals and their businesses in the Greater Toronto Area.

* Yes, the $813,600 is an odd number.  Here is how it arises: The 2014 Budget raised the capital gain exemption for Toronto small business shares from $750,000 to $800,000 and the $800,000 is now indexed for inflation.  The 2015 figure is $813,600 ($800,000 x 1.7% inflation factor prescribed by tax law).

 

 

 

Ontario’s Retirement Pension Plan: Job-killing Tax or Opportunity?

On August 11, 2015, the Ontario government released more details regarding the Ontario Retirement Pension Plan (“ORPP”). As it is my job as an Oakville Chartered Professional Accountant to understand the ways that the ORPP and other government initiatives can affect my clients, I have been asked to clarify the consequences and details of the ORPP. Some of the details that were released to the public include:

  • Self-employed individuals will not be covered under the ORPP; the government looking for options to allow self-employed individuals to participate
  • For businesses to be exempt from the ORPP they will either need to:
    • Provide a Defined Benefit (DB) plan with a minimum benefit accrual rate of 0.5% (for instance, OMERS’ rate is 1.85%)
    • Provide a Defined Contribution (DC) plan with minimum contribution of 8% with at least 4% coming from employers
    • Provide a pension plan that meets the ORPP’s comparable threshold tests
  • Companies with 50-499 employees that currently do not have a plan and who are not exempt will start making contributions on January 1, 2018:
    • 1.6% (50% from employer, 50% from employee) in 2018
    • 3.2%(50% from employer, 50% from employee) in 2019
    • 3.8%(50% from employer, 50% from employee) in 2020
  • Companies with 50 or fewer employees that currently do not have a plan and who are not exempt will start making contributions on January 1, 2019:
    • 1.6% (50% from employer, 50% from employee) in 2019
    • 3.2%(50% from employer, 50% from employee) in 2020
    • 3.8%(50% from employer, 50% from employee) in 2021

Some have viewed this as a “job-killing” tax, similar to the Canada Pension Plan (CPP) and Employment Insurance (EI). Like the CPP and EI, the cost increases as the number of employees increase (discouraging new hires) and as salaries increase (discouraging raises). There is also time and/or monetary costs in dealing with the administrative burden of the ORPP or the equivalent setup by the company. 

However, as an Oakville Chartered Professional Accountant, I can help you find the benefits of the ORPP for your company. Companies can use the introduction of the ORPP to:

  • Introduce/amend pension plans to attract/retain employees to remain with their organization
  • For companies with multiple owners, allow owners to have their own pension plan as part of their overall savings strategy

Given these new requirements, it is important you think of your pension strategy in the coming months in order to be ready for when the changes take effect in either 2018 or 2019.  Please contact me to discuss your situation with an Oakville Chartered Professional Accountant. 

William Khalilieh is an Oakville Chartered Professional Accountant, based in Oakville, Ontario, who provides practical tax and accounting solutions to individuals and their businesses in the Greater Toronto Area.

Don’t spend your UCCB: You’re going to need it

On July 20, 2015, every Canadian with children will receive $60 a month per child, or have their benefit increased to $160 a month per child as a result of changes to the Universal Child Care Benefit program. Depending on whether or not you signed up for direct deposit with your Oakville personal taxes, you’ll receive a cheque in the mail or a deposit into your bank account. This refund covers January 2015 to July 2015.

You may be thinking:  This is great! Extra money in my pocket! However, there are a few things you’ll want to remember:

a) The UCCB refunds are taxable as ordinary income for dual parents. For single parents, the refunds reduce the “Amount for eligible dependent” credit. In Ontario, these payments are taxed at a rate between 20.05% to 49.53% depending on your income level.

b) As part of the increased UCCB, the”Child Tax Credit” has been eliminated. This credit elimination will increase your Oakville personal taxes by $338.25 per child per year.

For an average working dual parent family, the impact will be as follows per child as follows in Ontario:

a) Increase to UCCB:                                 $720.00  –  $60.00 per month for 12 months

b) Taxes on UCCB:                                     ($216.00) – Assume 30% tax rate

c)Loss of Child Tax Credit:                       ($338.25) – per year

Net impact per child each year:      $165.25 

In this example, you would benefit an extra $300.00 if you benefit from the $1,000 increase to the child care expense limit.

This example illustrates that Canadians will not fully benefit from the increased UCCB and will need to ensure they can cover the changes in their Oakville personal taxes as laid out above.   Please contact me to determine the impact on your family and how I can assist you to ensure you do not receive a larger than expected tax bill for 2015. 

William Khalilieh is a Chartered Professional Accountant, based in Oakville, Ontario, who provides practical tax and accounting solutions to individuals and their businesses in the Greater Toronto Area.

Mutual Fund Corporations: A less taxing investment?

In one of my previous posts, I discuss how mutual fund corporations are becoming more popular because they offer tax-deferred investing. I explain how calculating the ACB of these investments can be challenging. As a Toronto chartered professional accountant, I’m often asked how mutual fund corporations can offer investors the ability to switch funds on a tax-deferred basis but mutual fund trusts cannot?

The answer is that corporations are allowed to do tax-free transactions with their shareholders that mutual fund trust holders cannot do with their unitholders.  In particular, if you hold shares in a mutual fund corporation, you can move between the various classes of the corporation on a tax-deferred basis. Tax law does not recognize the trade of shares between classes of a single mutual fund corporation as a “sale” of the shares. Therefore, these trades are non-taxable.

The one advantage that mutual fund trusts have over mutual fund corporations is that trusts can allocate all of their income to investors, while mutual fund corporations can allocate only Canadian dividends and capital gains. For that reason, mutual fund corporations generally have equity investments. However, sellers of these investment products have come up with exotic variations of mutual fund corporations to attract investors, including classes to allow for investing in money market funds and offer so-called tax efficient classes (“T class”) by returning capital to investors.

Another consideration is cost. Typically, the mutual fund corporation will cost more in management fees than the equivalent mutual fund trust investment because the cost of the corporate structure is higher. However, this cost may be worth if if you want to switch to another fund on a tax-deferred basis.

Taxes are an important part in making any investment decision as after-tax return is what counts. This is where a Toronto chartered professional accountant becomes useful. Please contact me if you would like me to review your investment portfolio or any possible investment from a tax perspective. 

William Khalilieh is a Toronto Chartered Professional Accountant based in Oakville, Ontario, who provides practical tax and accounting solutions to individuals and their businesses in the Greater Toronto Area.

2015 ON Budget Summary & Analysis

The Ontario government delivered the 2015 Budget today. Here are the highlights that will have an impact on you and your Oakville small business:

Personal Tax Changes

No changes were announced to personal tax rates. However, with the change to the federal dividend tax credit (see my 2015 Federal Budget Summary and Analysis here), the top marginal tax rate on non-eligible dividends (basically dividends from companies that get the Oakville small business deduction or have investment income) will increase as follows:

  • 2015: 40.1%
  • 2016: 40.4%
  • 2017: 41.0%
  • 2018: 41.2%
  • 2019: 41.4%

If you have income from one of these types of corporations, especially from those that generate investment income, you may want to think about taking dividends out sooner rather than later.

Ontario is also moving to parallel the federal rules when it comes to trusts and estates that were announced in the 2014 Federal budget. The most significant change is that estates have 3 years during which it can benefit from marginal tax rates. Afterwords, estates are taxed at the highest tax rates. Those with a person with a disability as a beneficiary are exempt from this change.

While technically not a tax increase, be aware of increases in user fees, such as those for drivers and vehicles, hazardous waste, and family courts.

Of course, I can’t forget the beer tax. It was announced last week that the cost of a 24-case will increase by 25 cents per year until 2018.

Business Tax Changes

No changes were announced to corporate tax rates.

Other issues of note:

  • Ontario continues to develop its version of the CPP, known as the Ontario Retirement Pension Plan
  • Ontario is restricting or eliminating some of their specialized tax credits, including two of the more mainstream credits: The Apprenticeship training tax credit and the Ontario interactive digital media tax credit
  • Ontario continues to combat the underground economy with a focus on residential roofers this year and auto-body repair shops next year
  • Introducing laws to make “zappers” illegal
  • Ontario wants to enter into information sharing agreements, including with municipalities

This analysis is intended as a brief overview and does not include all of the details to help you take advantage of these rules as applicable. Please contact me to see how these changes can impact you and your Oakville small business. 

William Khalilieh is a Chartered Professional Accountant, based in Oakville, Ontario, who provides practical tax and accounting solutions to individuals and their businesses in the Greater Toronto Area.

2015 Federal Budget Summary & Analysis

Today the federal government released the 2015 budget to the public. Here are the highlights that will have an impact on you, your business, and your Toronto corporate taxes.

Personal tax changes

Lower minimum required withdrawals from Registered Income Funds (RIFs)

Easily the biggest change for personal taxes, this amendment lowers the minimum required withdrawal from your RIF if you are between 71 and 94. The amendment allows the minimum withdrawal to be approximately $17,885, and also  may allow seniors to keep or get the Guaranteed Income Supplement and/or Old Age Security.

Increase to the Tax-Free Savings Account Limit

The limit has been increased to $10,000. The limit will not increase any further. This is another beneficial change for seniors as well as those who have the funds to invest.

Home Accessibility Tax Credit

At the end of the year, this credit will allow people 65 or older and individuals who otherwise get the disability tax credit to claim expenses (up to $10,000) as a non-refundable tax credit (i.e. the credit can only reduce your tax bill to zero and not generate a refund) to help these individuals to continue to live in their home. Examples of expenses that qualify include wheelchair ramps, walk-in bathtubs, wheel-in showers and grab bars. While I am not a fan of these boutique tax credits, this credit is easy to support. Other “minor” changes:

  • Simplified reporting of foreign assets if your foreign asset is between $100,000 and $250,000.
  • Sales of qualified farming and fishing property are now valid for a $1,000,000 capital gain exemption rather than $800,000 (indexed to inflation) for small business corporations.
  • Registered Disability Savings Plans (RDSP) can still be opened by relatives of individuals who cannot enter into a contract – extended to 2018 from 2015.
  • Repeated Failure to Report Income Penalty is reduced for individuals who unintentionally failed to report income. This change benefits lower income earns who didn’t report income from CPP or something similar in cases where the tax was small compared to the income.
  • Procedural changes that make it easier for CRA to advance theories in tax litigation.
  • CRA agents can now share information between “tax” and “non-tax” departments.   For example, CRA will now be able to use income tax returns to determine an individual’s student loan repayments.
  • Changes to the Family Tax Cut that allow tuition credits to be used to help split income.

Changes to Toronto corporate taxes

Reduction in the tax rate to corporations that get the small business deduction (“SBD”)

Currently, corporations that qualify for the SBD pay 11% tax to the federal government. The tax rate will be reduced by .5% per year for the next four years to take it to 9% starting in 2016. This change is a bit of a surprise as it was not mentioned in any political commentary.

As a result of these changes, dividends received from these corporations will have a higher effective tax rate due to a lower  “dividend tax credit” resulting from lower Toronto corporate taxes being paid. However, a side effect of this change is that if your corporation earns rent and other passive income you may be better off taking some dividends out now to save tax overall.

New small businesses can remit their payroll quarterly

Currently, all new small businesses must remit payroll taxes monthly before qualifying to go quarterly. This change allows all small business to go immediately remit quarterly starting in 2016 assuming all of the qualifications are met.

Employment Insurance Premium Rate reduction

The rate will be reduced to $1.49 per $100 of earnings in 2017 from $1.88 per $100 of earnings in 2016. However, if Ontario goes ahead with its Ontario Pension Plan in 2017, you may not see this reduction.

Other changes that will impact your small business

  • The government is inviting comments on whether changes should be implemented in regards to the types of income that qualify for the small business deduction.  Businesses like campgrounds, hotels, and self-storage units that do not employ more than 5 full time employees are affected by these laws.  Any relief to these types of businesses would be welcome.
  • The government may release draft legislation regarding the conversion of the “eligible capital property” system into the regular capital cost allowance system sometime this year.

This analysis is intended as a brief overview and does not include all of the details to ensure you can take advantage of these rules as applicable.   Please contact me to see how these changes can impact you and your Toronto corporate taxes. 

William Khalilieh is a Chartered Professional Accountant, based in Oakville, Ontario, who provides practical tax and accounting solutions to individuals and their businesses in the Greater Toronto Area.

Calculating ACB: Not as Easy as ABC

Mutual funds investments are popular with Canadians as they offer the opportunity to access professional money managers without a significant upfront investment. Yet, unlike buying stocks, tracking your tax cost (Adjusted Cost Base or “ACB”) takes a lot of work and many people simply don’t bother.  Even though the CRA does have a guide to assist you in this task (RC4169 Tax Treatment of Mutual Funds of Individuals)  and they have made the guide as simple as possible sometimes it’s just easier to talk to an Oakville tax advisor.

The most significant challenge is having the patience and the time to review your old investment statements and tax slips to calculate the tax cost correctly. Perhaps your mutual fund company has done this work for you as part of the information it provides to you during tax season. However, it may not be correct. Possible reasons include incorrectly programmed computer systems or the superficial loss rules may have applied to prior sales and you may have the same investment at a different institution. Note that fund companies will have a disclaimer that information may not be accurate and direct you to an Oakville tax advisor to review the calculations.

I have also noticed that mutual fund corporations are getting more popular with Canadians as they offer tax-efficient and tax-deferred investing. Tracking the ACB for these investments is even harder because, unlike a mutual fund trust that uses a T3 slip to report distributions, mutual fund corporations issue distributions on a T5 (like interest from banks). Mutual fund corporations, like trusts, can pay you a distribution that is considered a “return of capital”. The return of capital is a non-taxable distribution that lowers your ACB and creates a capital gain in the future. However, there is no space on the T5 to indicate a return of capital. As an Oakville tax advisor, I have seen some mutual fund companies put this amount into an empty space on the T5. If the return of capital is not put onto the T5, you would have to look at your investment statements and perhaps even talk to the fund company to ensure you calculate your cost correctly.

Getting the ACB right is important so that you pay the proper amount of tax. You want to avoid overpaying your taxes and giving the government a gift / interest-free loan or underpaying only to risk the CRA charging you large amounts of interest. Bringing in an Oakville tax advisor is the safest way to calculate ACB. Please contact me and I will be happy to review your ACB calculation or do it for you. 

William Khalilieh is a Chartered Professional Accountant, based in Oakville, Ontario, who provides practical tax and accounting solutions to individuals and their businesses in the Greater Toronto Area.

Earn Money Paying Taxes! (For a limited time)

I came across an online article in the Toronto Star where they were featuring this company, Plastiq Inc., that allows you to pay your taxes and other utilities with your credit card.

The catch? (Of course, there’s a catch.)

The company normally adds a surcharge of 2.5% of the amount owing as the government always needs to get paid and Plastiq needs to make money. As a Toronto accountant, the surcharge would usually discourage me from using such a service. However, Plastiq has a limited time offer that got my attention.

From now until May 31st, Plastiq is only charging 1% on paying your tax bill on Mastercard (Visa and Amex are not part of this promotion). If you have happen to have a cash back or similar travel card that gives you 1% or more of your purchases as a reward, then you can come out ahead.

For example, if you pay $1,000 to CRA via Plastiq and your Mastercard will be charged $1,010. However, your rewards card would give you $20.20 back. Net amount out of your pocket – $989.80. You would save $10.20 by using Plastiq. Not a bad deal for something that you have to pay anyway.

I only recommend this strategy if you pay off your credit card in full each month, otherwise the interest cost will negate any savings. A better route to go would be to put your payment on your credit card first and then pay your taxes with Plastiq. It’s a win-win situation.

What is really good about this promotion is CRA is allowing personal taxes, corporate taxes, payroll, and HST to be paid in this manner. So this promotion can help you and your business.

Paying taxes is never fun but at least for a limited time, it is slightly less painful.

If you have any questions, it’s best to talk to a Toronto accountant directly. Please contact me so I can help you navigate this promotion effectively.

William Khalilieh is a Chartered Professional Accountant, based in Oakville, Ontario, who provides practical tax and accounting solutions to individuals and their businesses in the Greater Toronto Area. so I can help you navigate this promotion effectively.